Easily Scared Market

That was fast, how quickly investors have turned on this market and gone from bullish and complacent to worried and scared.  It took less than a 2% pullback in SPX to cause this to happen.  I am not basing this on anecdotes, but seeing the put/call ratios soar over the past few days, higher than the levels seen at the July lows below 2700.  Of course, the overseas markets are taking a bigger hit, as always, but the SPX is the center of the financial universe, and it is still more than 100 points higher than the July low, and the sentiment is similar to those times. 

I would like to see a bear market and high volatility as much as the next trader, but the market doesn't care about what I want or what traders want.  After the big tax cuts, the US corporations are too flush with cash and too willing to buy back stock for there to be a big drop that sticks.  Sure, you can have algo driven flash crashes but not a bear market.  And without a significant fundamental change in US economic conditions, you will not have a sustained correction in the stock market. 

I covered my short on Tuesday, and was very tempted to reshort yesterday at higher levels, because I didn't think this bearish sentiment would go away quickly.  These kind of sentiment shifts tend to last at least 5 trading days, since the mood shifted on Friday, that gives this market at least another 3 trading days to go lower.  There is decent support around SPX 2790, the highs in June and the low earlier this month.  That could be an area to take a small speculative long, looking for a move back to 2850.  My base case is for a small choppy range from 2790 to 2850 for the rest of August.